Alarmists are busy drawing parallels to fintech and the dot-com bust of 2000. But here’s why fintech has immeasurably more sticking power than the investment craze over Internet-based companies. Quick to talk. Slow to act. It’s a symptom of most innovations that come to the financial services industry, and there’s good reason for that. Financial […]
Alarmists are busy drawing parallels to fintech and the dot-com bust of 2000. But here’s why fintech has immeasurably more sticking power than the investment craze over Internet-based companies.
Quick to talk. Slow to act. It’s a symptom of most innovations that come to the financial services industry, and there’s good reason for that. Financial services, a sector that’s ripe for change, has long favored tradition. Banks have gone unchallenged for over a century in the marketplace.
But with the generational shift from Gen X to nearly 85 million Millennials, a new digital imperative is emerging. The widespread use of mobile has all but erased the need to visit a physical bank branch. The cost of computing has decreased drastically, representative in that two iPhone 6s contain more memory than the International Space Station. And sentiments toward centralized power in banking is met with distrust at a higher degree than ever before. Fintechs are edging in on low-margin business product offerings like payments with faster solutions and an eye toward the future user.
Fintech’s spotlight moment
It goes without saying that fintech is having its moment. Research firm The McKinsey Global Institute has tracked upwards of 2,000 fintech startups in this space, and estimates as many as 12,000 exist. The 2018 World Economic Forum at Davos discussed fintech at length in a panel of experts titled: “The Future of Fintech.”
There is no shadow of doubt among innovators that the change fintech provides is enduring. But with nervous investors watching Bitcoin’s volatility, it’s important to make the distinction of what makes fintech different from the dot-com boom.
Dot-com businesses operated in the market like a sugar high. Basic cash flow principles flew out the window as many companies skimped on proving their ideas actually had market potential. Speculative valuations led many investors to follow the buzz instead of looking at a balance sheet or profitability. And while it is true that the internet has immense power to displace brick-and-mortar businesses, the momentum was shortsighted. This caused a good number of dot-com businesses to run out of cash shy of the goal, rightfully spooking investors.
Fintech moves into “adulthood”
The difference in the fintech movement is two fold:
A growing distrust of traditional financial establishments, thanks to the housing market crisis of 2008;
Fintech’s unique symbiotic relationship with incumbent banks.
While the dot-com wave was tech’s early failure, fintech’s approach is more timely and measured. The market sector has matured with fintech services that deliver better technology and services to the customer alongside banks as a trusted repository of funds.
Building customer loyalty
Fintech’s current challenge is to draw customers. Banks have always focused on the customer relationship and have enjoyed an assumed level of trust that has gone unchecked for centuries.
But with the turnover from Generation X to Millennials, many of the younger generation are less likely to go with a traditional bank than before. A growing mistrust of centralized banks is one driver that’s widening the scope of traditional financial service providers. Wells Fargo’s recent payout in the amount of $185 million for opening fake accounts under customer names is just one example. According to a 2016 Gallup poll, America’s confidence in banks hasn’t shown signs of improvement since the 2007 recession, lingering around 30 percent.
Unlike traditional banks, fintechs have an approach that creates sticking power through lean operational principles. While banks have clunky legacy technology to deal with, fintechs can afford to serve customers at a lower cost due to better technology. Fintech’s focus on niche market segments means there are huge opportunities to outfit far-flung populations with digital solutions as is the case with the underbanked.
Clearing the regulatory bar
Playing nice with regulators will put fintechs into a winning stride. This is again where the dot-com bust missed the mark.
Forging ahead into the future without a game plan instead of forecasting the requirements for legitimate businesses has its price. Fintech outfits in the U.S. are expectant that the Office of the Comptroller of the Currency will pass down a special charter that will allow them to do business under slightly different terms as banks, but with a measure of prudent oversight. Things like compliance, security of customer data, and anti-money laundering efforts will boost companies on the fringe of the disruption onto center stage. As with most things, and especially fintech, there are no shortcuts.
Disrupting the banking industry is no small feat, but for those who make it out the other side, there are big rewards. The untapped opportunity made possible through technology is vast, but entrants strategic in their approach and operational standards will outlast the others. As with most disruptions, fintech is expected to persist, despite naysayers, although it may not transfuse the market with change as rapidly as some expect. There’s a reason they call it the “slow march” toward progress, but it doesn’t negate the fact that change is coming.
Written by Lauren Ruef, a research analyst at Nvoicepay.
News Comments Today’s main news: Walmart partners with Even, PayActiv on employee financial wellness. Moody’s says some consumer ABS sectors will be weaker next year. LendInvest has $1B in funds under management. Yirendai’s investment in Lion Rock amounts to $50M. LexinFintech kicked off IPO yesterday. Crowd Genie to launch ICO. Today’s main analysis: Why mortgage tech is finally taking off. Australian […]
On Wednesday, retail giant Walmart announced it has teamed up with fintech startups Even and PayActiv to provide a suite of new financial wellness services for its more than 1.4 million associates nationwide.
Goldman Sachs(NYSE:GS) and Morgan Stanley(NYSE:MS) are both trying to expand their businesses into more traditional areas of consumer banking, such as consumer loans and mortgages.
Matt Frankel: Out of all the major unsecured lending platforms — Lending Club, things like that — Marcus was the quickest one to get to $1 billion in loan volume.
The interest rates people have gotten are more competitive than the others, because they can afford to run it at slightly more compressed margins than, say, a Lending Club.
Frankel: Morgan Stanley’s robo-advisory platform just launched. So that’s one way they’re trying to branch out into more traditional areas of banking and investing.
Just to throw a couple of figures out there, Morgan Stanley’s wealth management business, which is not the highest-margin business, which is why they’re not as efficient as Goldman, their wealth management business, they’re margin has gone from 9% to 22% since 2010.
Morgan Stanley estimates that their clients still have about over $2 trillion worth of assets with other asset managers, and they’re trying to bring some of that in.
The number of Americans severely behind on payments on federal student loans reached roughly 4.6 million in the third quarter, a doubling from four years ago, despite a historically long stretch of U.S. job creation and steady economic growth.
In the third quarter alone, the count of such defaulted borrowers—defined by the government as those who haven’t made a payment in at least a year—grew by nearly 274,000, according to Education Department data released Tuesday.
The total number of defaulted borrowers represents about 22% of the Americans who were required to be paying down their federal student loans as of Sept. 30. That figure has increased from 17% four years earlier.
By the end of 2017, nearly $1.8T worth of mortgages will have been originated in the United States this year, according to government-backed mortgage lender Freddie Mac.
Yet, despite the size of the mortgage industry, the space still hasn’t digitized. Originating, processing, and underwriting a home loan with a large bank lender still requires faxes and snail mail and take almost as long as it did 20 years.
Driver 1: New lenders increase the competition
Non-bank lenders are becoming much bigger players in mortgages. In 2011, three banks accounted for half of new mortgage loans, according to the Washington Post. As of September 2016, that share dropped to 21%.
In 2011, just two of the top 10 biggest lenders were non-bank lenders. In 2016, non-bank lenders like Quicken Loans accounted for six of the top 10.
Driver 2: Incumbents are looking to improve their technology
At an average cost of $7,000, originating and processing a loan takes over 400 pages and more than 25 humans working hundreds of hours across 50 days. Of the total, approximately $5,000 can be attributed to human processing costs.
Driver 3: Individuals’ debt burden forces them to find alternative lenders
Eighty percent of millennial renters want to buy a single-family home or apartment, but 72% cannot afford to, according to survey data from Apartment List.
Although total US homeownership has risen to 64% as of Q3’17, when examined by age group, the percentage of homeowners under 35 years old is only 36%. This is down from 44% in 2004.
The anticipated continued expansion of the US economy into 2018 will support overall collateral performance of consumer asset-backed securities (ABS), according to Moody’s Investors Service. However, growing financial strains among some pockets of borrowers and loosening of underwriting by lenders will result in slightly weaker collateral performance for several categories of consumer ABS, including transactions backed by auto loans, credit cards and unsecured personal loans.
Amid further declines in automobile sales and used vehicle prices, Moody’s says issuers will generally maintain the steady collateral quality in their 2018 auto loan and lease deals, with incremental weakening in certain collateral attributes such as loan terms. New private student loan ABS, meanwhile, will likely continue to have strong credit quality and performance.
The Federal Communications Commission (FCC) voted today to dismantle internet “net” neutrality: a vote that determined whether the internet should be treated like a public good or service or whether it should be treated like a product.
Another consequence of dismantling net neutrality has to do with undermining financial inclusion and the impending technological revolution of financial services. An array of financial technologies—online and mobile technologies referred to by their shorthand “fintech”—is heralded with the potential to expand access to financial services to underserved households and in underserved communities.
Online and mobile banking could become less reliable if internet service companies adjust connectivity speeds. Banks are increasingly shifting their products and services online and the number of bank branches is projected to decline by 20% over the next decade.
Online lender Prosper announced the appointment of Claire Huang as a board member this week as the company looks to enhance its product offerings in 2018.
Huang’s appointment was effective as of Tuesday, according to a company statement. Prior to joining the San Francisco-based lender’s board of directors, Huang was the first ever chief marketing officer at JP Morgan Chase.
An estimated 45 million Americans don’t have a credit score and others have trouble bringing up their scores, even if they are in a better financial position than in years past.
And after facilitating 125,000 loans in three years, INSIKT is raising $50 million to expand. The round is led by Grupo Coppel, with participation from FirstMark Capital, Revolution Ventures and Colchis Capital. INSIKT has raised $100 million to date.
INSIKT has built what they believe is a better alternative to payday loans, breaking up payments into smaller installments. Its white-label loan processing service is used in over 600 banks and credit union locations across California, Texas, Illinois and Arizona.
With the economy continuing to improve and household wealth growing, total consumer debt has increased in 12 consecutive quarters and hit a record $12.8 trillion in the second quarter, according to the Federal Reserve Bank of New York. And, for the most part, consumers are staying on top of their bills. The American Bankers Association said recently that the midyear consumer delinquency rate held steady around 1.56%, which is below the 15-year average of 2.16%.
John Hancock wants to change that narrative with Twine, its robo-adviser and personal finance tool it released last month. Twine emphasizes simplicity in its look and feel — a user interface similar to many startup-developed apps out there.
John Hancock looked outside, buying San Francisco-based financial services AI startup Guide Financial in 2015.
Twine operates as a separate organizational unit based in San Francisco, while most of John Hancock’s offices are in Boston. The team of around 25 employees includes engineers, product managers, user experience designers and marketing staff. But despite being organizationally separate, Goose said the team stays in contact with the mother ship through travel and video conferencing.
But this isn’t a return to the way things used to be, said Hearts & Wallets, the Rye, N.Y.-based research firm that conducted the study of 40,000 individuals.
Today’s investors are what the firm calls “hybrids,” who use a mix of paid and free live professional advice, digital advice and their own insights. They now account for 41% of all U.S. households, the firm said.
Blenders of digital and live advice include 68% of consumers ages 35 to 44 with investable assets between $100,000 and $250,000, and 85% of consumers under age 35 who have over $1 million in assets. In all, over 75% of consumers under age 45 with assets of over $250,000 are “hybrids,” the firm said.
In hiring Cox, the San Antonio bank, which has a longstanding reputation for being innovative, effectively agreed to restructure the entire company. She has plans to “levelize” the business and technology teams and morph them into “business technologists,” who are empathetic and understand that technology is the enabling function of their entire business — not the checking account or the insurance policy.
The new model will make USAA look more like one of the technology “greats” — the usual suspects like Apple, Amazon, Facebook and Google — instead of an old bank or insurance company, Cox said.
Comptroller of the Currency Joseph Otting has not weighed in on the fate of a fintech charter yet, but the ball is now squarely in his court.
The agency that Otting was just appointed to run scored a victory earlier week when a judge dismissed a lawsuit from the New York Department of Financial Services, which had challenged the Office of the Comptroller of the Currency’s authority to create a charter for fintech firms.
Cutting out retail P2P investors doesn’t seem to have slowed LendInvest down. The UK’s leading fintech property lender now holds £765m (approximately $1bn) under management. Its capital base has more than doubled in 2017, up 104 per cent since the start of the year.
The highest yields for landlords are in Manchester at 5.55% and the city is also top in terms of rental growth at 5.76% and has a reasonable capital gains growth at 8.34%, the buy to let index from specialist lender LendInvest.
When it comes to capital gains the top city is Colchester at 11.96%, followed by Southall at 11.09%, Hemel Hempstead at 10.27%, Slough at 10.19%, Harrow at 9.89% and Ipswich at 9.44%.
Millennials who began renting at 21-years-old and live in an average-sized property outside of London will spend an average of £110,830 in household rent before buying their first home – typically at an age of 32, according to research by peer-to-peer lending platform Landbay.
For those living in the capital – where property prices and rents are significantly higher – the amount increases to £273,210.
The value of residential mortgages written off by banks and building societies has dropped by 79% in the past year, according to the latest research.
Data from the Bank of England revealed that UK lenders wrote off £72m of residential loans in the year end 30th September 2017, 79% lower than the same period in 2015/2016 – when £348m was written off – and even lower than pre-credit crunch levels.
UK consumers looking for personal loans are increasingly shifting away from traditional banks towards digital loan providers according to Zopa, the pioneering financial services company.
Research on the price comparison sector* shows loan sales obtained via price comparison sites have doubled in the last two years.
The data highlighted by Zopa shows that over 113,000 loans were sold through price comparison sites in the 6 months to April 30 2017, representing a 139% increase compared to the same period in 2015, whereas the overall unsecured personal loan market grew only by approximately 20% in the same period.
Gibraltar’s financial services watchdog will introduce the world’s first bespoke licence for “fintech” firms using blockchain distributed ledger technology from next month in a bid to attract start-ups to the British overseas territory as it prepares for Brexit.
Twenty-two of the world’s biggest banks and fintech firm R3 have just developed an international payments system using blockchain.
Gibraltar expects firms numbering well into “double digits” to seek authorisation after the new rules come into force on January 1, Gomez said.
The Shenzhen-headquartered online micro lender, which launched the deal on Thursday, joins a flurry of other Chinese internet finance companies, including Qudian, PPDai and Hexindai, in their rush to raise capital with a New York listing…with a US share sale worth up to $132 million.
Look & Fin, the largest Belgian player in the field of crowdlending, plans to expand again in Europe.
On average, more than one million euros is invested monthly via Look & Fin. Loans vary between €50,000 euros and €1 million, with an average term of 38 months. Individuals invest on average €2,400 and can count on an average return of 7.6%.
Governments, banks and startups have been trying for years to solve the problems associated with identifying people in a digital world. The challenges are only getting harder thanks to identity thieves, data breaches that have exposed the personal information of hundreds of millions of consumers, and the fact that some folks want to avoid having to register face-to-face.
The latest entrant, a recent BBVA spinoff called Covault, is a bit different.
Its app lets consumers store their digital identity documents, passwords and (potentially) digital currency in a secure cloud, and then share pieces of that information with others as they see fit.
Diana is the CEO and co-founder of Suade, a software platform which allows financial institutions to better understand and meet their regulatory requirements.
At SIBOS2017, Paredes encouraged financial institutions to think of regulation as being at the centre of their business. More education and research for implementation is needed, suggested Paredes in our interview. Smaller companies like startups offer more agile implementation as they are technology driven companies. Meanwhile, the big machine of a bank is becoming better at agile acceptance of new technology.
‘Regtech will prevent the next financial crisis.’
Paredes explained this quote saying that while regulation is trying to prevent another crisis, it has no implementation guide. As such, regtech will be needed to give effect to the regulation.
Celsius is a peer-to-peer (P2P) and blockchain-powered global lending and borrowing network designed to enable coin holders to earn interest.
First off, why did you decide to use the blockchain to build Celsius?
The blockchain is the first real technology threat that the large banks have faced for the past 100 years. It has the potential to spur a new financial revolution from which they cannot adjust. We decided to build Celsius using blockchain to leverage the technology’s global presence and decentralized design to extract the bank’s profits and distribute them to our members.
What was your thought process behind it?
We want to find the best way to add the next 100M crypto users to the market, and we came to the conclusion that offering coin holders 5-7% in interest on their coins would be the best way to get there.
Did you face a problem within the consumer credit industry or do you think there is a gap in the market for Celsius to fill?
Unfortunately, the continued concentration in the banking sector has allowed banks to pay people less than 2% interest but charge our credit cards 25% interest when lending us the same dollars.
A new paper from Milliman, a consultant to the insurance and financial services industries, discusses the ongoing transformation in and of the global reinsurance industry that alternative investment has created.
By the end of 2016, Milliman says, alternative capital in the catastrophe space consisted of around $76 billion, which breaks down as follows:
Collateralized reinsurance $39 billion
CAT bonds, $25 billion
Sidecars $8 billion, and
Industry loss warranties $4 billion.
As a proportion of the whole: alternative capital now represents roughly 13% of the available capital in global reinsurance.
Since 2011 the percentage of bonds with indemnity triggers has increased from 30% to roughly 70%.
The number of small business customers signing onto loans through marketplace lenders has increased more than 500% over the past year, but experts say scrutiny must be put on the alternative finance sector now to ensure smaller operators get the best deal.
In 2015-16, ASIC’s survey of the sector put the total value of loans through this kind of model at $156 million, but that figure has doubled over the past year to now sit at $300 million. Total borrowers for the year jumped from 7,448 last year to 18,746 this year.
Earlier today, the Australian Securities and Investments Commission (ASIC) published a report on the marketplace lending industry (peer to peer lending). ASIC believes that by monitoring Fintech they are better positioned to assess any risk as the industry develops.
The survey covers marketplace lending activities of 12 platforms that are regulated by ASIC – so it is not comprehensive of the entire online lending sector.
In summary, there were 353 incidents or suspected incidents of fraud , compared to 126 incidents or suspected incidents of fraud during the 2015 – 16 survey. There was one cyber security incident, compared to zero during the 2015– 16 survey. There were reports of some borrower complaints but most appeared to be minor. The average default rate was 2.2%.
Crowd Genie, a fully operational Singapore-based peer-to-peer digital lending platform licensed by the Monetary Authority of Singapore (MAS), has been selected by the token holders of the ICOS platform as the latest promising project to hold its own ICO.
Unlike most projects contemplating an ICO, Crowd Genie is not a startup but rather a debt-based lending platform that has been in operation for more than 12 months. It is one of only four P2P lending platforms licensed by the MAS. The project’s vision is to build a tokenized Pan-Asian lending exchange based on smart contracts, to ensure cost-effective, safe and efficient cashflows between lenders and borrowers.
The public ICO will begin on January 15, 2018, and will run until February 15, 2018. On offer will be 50,000,000 CGCOINs, a utility token which can be used to trade on the Crowd Genie platform.
Singapore-based fintech Canopy announced it has raised fresh funding of $3.4 million from investors including Switzerland’s second-largest bank Credit Suisse as well as Lionrock Capital.
Canopy, formerly known as Mesitis, is a Singapore-based anonymous account aggregation and analytics platform for financial institutions, wealth management professionals, and high net worth individuals.
Introduction The last few quarters were not good for IPOs, but, finally, the market has gained some momentum. In Q2 2017, 54 IPOs managed to raise $11 billion. The first two quarters of the year have surpassed IPO fundraising for the whole of 2016. Online lenders are also moving down the IPO road, and SoFi […]
The last few quarters were not good for IPOs, but, finally, the market has gained some momentum. In Q2 2017, 54 IPOs managed to raise $11 billion.
The first two quarters of the year have surpassed IPO fundraising for the whole of 2016. Online lenders are also moving down the IPO road, and SoFi is the next online lender touted for listing on the stock exchange after posting record numbers in its second quarter results. But the recent departure of CEO and founder Mike Cagney puts a major question mark on what’s next for the student finance pioneer.
Social Finance: First of its Kind
Social Finance (SoFi) is an online finance company that offers a range of lending and wealth management services. Mike Cagney, Dan Macklin, James Finnigan, and Ian Brady founded SoFi in 2011 to provide a lending platform to students at Stanford and other elite colleges. Initially, the company was structured on a model to help students use funds raised from alumni, and since the borrowers and lenders are socially connected via alumni networks, default are less likely to happen.
The lender shifted from the alumni-based model to a more scalable underwriting approach to provide lending options to all financially responsible individuals. The underwriting model does not only evaluate its borrowers on financial parameters like bill payments and debt, but also evaluates their cash flow, professional history, and education. It has broadened its offerings from the initial student refinance to mortgages and personal loans targeting high earning young professionals.
Social Finance: Numbers
Last year has been tumultuous for the entire alternative lending space as the industry was plagued by an increase in default rates, regulatory changes, corporate governance issues, and scandals. Amidst all this chaos, SoFi still managed to generate positive results in 2016 as it funded approximately $8 billion in loans witnessing an impressive jump from $5 billion in loans in 2015. The graph below shows the growth in total loan originations to $16.7 billion (approx) from more than 250,000 members since inception.
With its vision to expand into new product segments and countries beyond the US, SoFi raised $500 million in February 2017 in a Series F funding led by Silver Lake, Softbank Group, and GPI Capital. With this investment round, the company’s total equity funding has reached a mammoth $1.9 billion.
In the second quarter of 2017, SoFi reported that it originated $3.1 Billion in loans and earned $134 million in revenues with an adjusted EBITDA of $61.6 million. The company has expanded its horizons by venturing into the lucrative insurance business. SoFi has obtained insurance license from several states such as Massachusetts, California, Florida, South Dakota, and Arkansas to act as insurance broker and has partnered with Protective Life Insurance. This could be a game changer as it allows SoFi to cross sell multiple products to its existing clientele.
Controversies and Scandals
SoFi was recently in the news as Cagney was accused of fostering a toxic culture in the company by current and former employees. In the wake of sexual harassment allegations, his resignation is not surprising. But such a reputational hit might hamper the company’s plans of opening a bank this year.
To ensure strategic continuity of its operations and to achieve its plans to go public this year, Tom Hutton, the Executive Chairman of the company has been selected as the interim CEO. He was of the view that the company is “well positioned, stable and strong enough; there is only need to build a transparent, respectful and accountable culture”.
Previous Attempts made by the company for an IPO
In 2014, SoFi shelved its first IPO plans after receiving funding of $1 billion from a group of investors led by Softbank. SoFi was developing new business lines such as wealth management and life insurance at the time and was not ready to be scrutinized by investors on a quarterly basis.
In 2015, Cagney again claimed that the company was looking to file an IPO within 12 months. But due to adverse market conditions in 2016 and regulatory challenges faced by the entire sector, SoFi decided to put off its plans that year.
The headwinds subsided in July 2017 when the US IPO market embraced Redfin’s IPO (an online real estate brokerage company which also offers mortgages) with open arms. With the offer price of $15 per share, Redfin managed to raise $138 million and closed at $21.72 on the first day of listing (45% above the listed price). Its grand show in the US IPO market broke the dry spell for fintech IPOs and gave SoFi the proverbial green signal to go public this year.
Following the Footsteps of Other Lending Platforms
2014 proved to be a path-breaking year for online lending platforms as two of the biggest players in the industry–Lending Club and OnDeck–came out with their IPOs. Lending Club’s IPO marked the first ever public offering by an online lending platform and raised $870 million. It was valued at $8.9 billion at one point. And in December 2014, OnDeck, a lending platform for small businesses also went public raising $200 million with a valuation of $1.3 billion. Since the beginning of 2016, both companies haven’t had a good run in the stock market as the stock price of Lending Club has fallen by approximately 43.4% and OnDeck’s stock price has fallen by 53.88%. Waiting out almost three years for that coveted IPO may prove to be lucky for SoFi as the market seems to have bottomed out.
Recent OCC Developments
The recent development at The Office of the Comptroller of the Currency (OCC), which regulates all national banks and federal saving associations, is surely going to benefit SoFi. The OCC declared it would accept applications by fintech lenders provided such companies would be subject to certain federal banking rules under the special charter. Being designated as a national bank will help SoFi to accelerate its growth plan and also will instill confidence in potential borrowers and investors.
With its focus on creating a community, SoFi has set the gold standard in the industry in terms of customer satisfaction and product innovation. This has enabled the company to etch its place among the elites in the industry. The only clouds on the horizon are the departure of Cagney along with sexual harassment claims. But analysts expect that the company’s IPO will receive a strong reception from the market. Investment from some of the big names in the industry goes to show investors believe in the platform’s business model, and now the stage is set for SoFi to roll out its long-awaited IPO.
News Comments Today’s main news: blooom passes $1B in assets under management. SoFi rolls out new deal. DBRS assigns provisional ratings to SoFi Professional Loan Program 2017-E LLC. The P2P Power 50. PeerStreet funds over $500M in loans with zero losses to investors. Today’s main analysis: LendingClub, Prosper after 10 years. FT Partners’ CEO monthly alternative lending market analysis (a […]
SoFi unlikely to damage digital lending sector. AT: “Every blight is a blight against the industry, but if by ‘damage’ you mean permanent, then I agree. The marketplace has a short memory and is very forgiving, so I see the short-term repercussions moving away rather quickly and leading to greater long-term stability for everyone.”
According to monthly Securities and Exchange Commission (SEC) ADV filings, blooom, inc. reached $1 billion in assets under management (AUM) faster than any other independent robo-advisor. blooom achieved this milestone faster than Betterment and Wealthfront – and with less capital raised.
blooom, a first-of-its-kind robo-advisor, helps anyone with a 401(k) or comparable employer-sponsored retirement plan. blooom’s mission is to make “do-it-for-you” financial advice available, simple and affordable, regardless of the client’s account size.
The $1 billion AUM milestone is one of many key achievements for blooom over the past year.
In mid-2016, Sheila Bair, FDIC Chair under two U.S. Presidents and “the second most powerful woman in the world in 2008 and 2009” by Forbes, joined the company as an Advisory Board Member.
In February 2017, blooom raised $9.15 million in Series B funding and surpassed the $500 million mark in AUM.
Since 2014, as part of its free product evaluation, blooom has analyzed the health of more than $2 billion of individual 401(k) plan balances.
DBRS, Inc. (DBRS) assigned provisional ratings to the following classes of notes issued by SoFi Professional Loan Program 2017-E LLC (SoFi 2017-E):
— $72,850,000 Class A-1 Notes at AAA (sf)
— $303,000,000 Class A-2A Notes at AAA (sf)
— $161,000,000 Class A-2B Notes at AAA (sf)
— $55,000,000 Class B Notes at AA (sf)
— $34,500,000 Class C Notes at A (sf)
The recent exit of Social Finance Inc. CEO Mike Cagney represents the third departure of a big-name digital lending CEO since the start of 2016. Social Finance, more commonly known as SoFi, was long considered a bright spot in the digital lending industry after making it through a rough 2016 unscathed.
Heading into 2016, investors started to notice higher-than-expected defaults on loans from large marketplace platforms, especially in lower-graded loans. In order to compensate for these higher losses, some lenders increased interest rates to keep investors on their platforms. For institutions that had been purchasing loans and packaging them into asset-backed securities, the underperformance of loans in previous securitizations became a concern. By April, Citigroup Inc. was having trouble marketing a new securitization of loans from personal-focused lender Prosper Marketplace Inc., leading the two firms to end their partnership. Without this important source of capital, Prosper saw originations fall 55.5% during the second quarter of 2016.
Past problems lead to a brighter future
Digital lenders entered 2017 with a renewed focus on operational efficiency and loan quality. For some, these measures are starting to pay off. LendingClub and On Deck both reached targeted profitability measures in the second quarter of the year. Prosper has reignited loan growth thanks to a $5 billion commitment to fund new loans, and the company reported positive adjusted EBITDA for the second quarter. Ex-LendingClub CEO Renaud Laplanche has launched a new personal-focused lender called Upgrade. Student-focused lender Earnest has taken a different approach and according to Bloomberg is seeking a buyer for its business. Originations have started to rebound as large lenders in the industry regain confidence in their models and continue to ramp up volumes.
Lending Club and Prosper have both been around over 10 years now. A lot has changed since both companies were founded, including the performance of the loans. In this blog post we’ll share the performance of each platform over the last 10 years. The fact that we have access to this data set is one of the things that makes marketplace lending unique. The screenshots from this post are taken from NSR Invest, a marketplace lending robo advisor that is also a sister company to Lend Academy.
Lending Club Data
For Lending Club investors, most loan grade returns peaked in 2013. As you look at this chart it is worth noting that the 2017 numbers are somewhat meaningless because the loans there have not seasoned yet.
Prosper launched in 2006 as the first p2p lending platform in the U.S. Initially, they operated with a very different model allowing deep subprime borrowers on to their platform.
When they relaunched Prosper grew very slowly, they needed to prove out their platform to the many retail investors who had lost money in Prosper 1.0. Even in 2009 and 2010 originations were just $8 million and $27 million respectively. Prosper began to scale significantly in 2011 and onwards.
Prosper’s C grade loans are the closest to Lending Club’s D grade loans so this is the best side by side comparison.
PeerStreet funds over half a billion in loans, maintains zero losses to investors (PeerStreet Email), Rated: AAA
PeerStreet, the real estate investing platform for real estate debt, has just hit the milestone of having funded half a billion in loans and with zero losses to investors since the company launched in 2015.
Platforms in the P2P and crowdfunding space are seeing increasing competition and scrutiny, but PeerStreet has continued to offer investors access to quality loans and high yields, earning the public testimonial of some high-profile users, such as
College Ave Student Loans, the leading next-generation student loan marketplace lender, announced it has completed a $161 million securitization of private student loans, its first securitization. The CASL 2017-A transaction, completed over the summer, received an ‘A’ rating from DBRS and a ‘BBB’ rating from S&P for its highest-rated senior notes. The transaction was four-times oversubscribed. Barclays was the underwriter on the transaction.
The securitization also marks a year of growth for College Ave Student Loans. To date, the company has secured more than $2 billion of committed loan purchasing power from multiple sources.
Technology giants like Google, Amazon, Facebook and Apple are showing an increasing interest in engaging with federal banking regulators, a move that underscores Silicon Valley’s growing involvement in the financial services arena.
Amazon lobbyists met with the Office of the Comptroller of the Currency starting in the second quarter of 2016, and again this year to discuss “issues related to mobile payments and payment processing, financial innovation, and technology,” according to publicly available lobbying disclosures.
PayPal, meanwhile, met with OCC officials in the second, third and fourth quarters of last year to discuss “mobile payment innovation” issues related to underserved customers and remittances and money transfers, according to its disclosures.
Vestwell, the industry’s first and only fiduciary-backed retirement platform for the financial advisor community, today announced $8 million in Series A Funding led by F-Prime Capital Partners, the venture capital group associated with the parent company of Fidelity Investments, with participation from Primary Venture Partners, FinTech Collective, and Commerce Ventures. Launched in late 2016, Vestwell received $4.5 million in its initial Series Seed of financing in September 2016.
So far this year, the company has signed over 50 registered investment advisor (RIAs) firms, as well as independent broker-dealers, asset managers, and bank/trust custodians, with plans to onboard several thousand advisors this year. The funding will be used to grow the team while further enhancing the technology.
YieldStreet Adds Three Tech Disruptors to Its Advisory Board (YieldStreet Email), Rated: A
YieldStreet, the fintech company seeking to change the way we invest and accumulate wealth, announced the addition of three new members to its advisory board: Ron Suber of Prosper Marketplace, Alexandra Wilkis Wilson of Gilt, and Mitch Jacobs of OnDeck.
The three new members join an elite team of advisors whose deep expertise spans technology, investing, policy and financial services. The current members include economic policy expert Donald Marron Jr. of the Urban Institute, Rahul Gupta former Group President of Fiserv (NASDAQ: FISV), Mark Gerson founder of GLG, former House Majority Whip Tony Coelho, and Todd Deutsch formerly of Goldman Sachs.
And while there are myriad explanations, one clear issue – according to Quick.me CEO Ola Okeshola – is the simple fact that access to capital for small businesses has dried up significantly since the Great Recession, as banks have either gone out of business or lost interest in lending to that sub-segment of the market.
FinTech, Okeshola said, can offer SMBs streamlined access to funds in ways that are unprecedented. That’s the good news: There is a large, hungry and addressable market out there.
The more challenging news is that finding ways to address that market isn’t necessarily as easy as flipping a switch – it’s addressing the right problem in the right way.
For small business loans, he explained, giving an SMB a low interest rate or a very fast approval time nearly guarantees they will sign on, regardless of how much it cost the alt lender to acquire that customer.
In Quick.me’s case, that means working with POS providers as their referral source, to basically cut their customer acquisition costs as much as possible. Because they can’t make money back spending hundreds of millions to acquire customers, they instead decided to explore how to work with someone who’s already spent that money.